﻿<p>
  To test the 3-factor model, we use it to predict returns on NASDAQ US Small Cap Index and NASDAQ US Large Cap Index. We estimate the model with daily returns in the past 6 years.
</p>

<p>
  Results for US Small Cap returns:
</p>
<img class="img-responsive" src="https://cdn.quantconnect.com/tutorials/i/Tutorial14-regression1.png" alt="Tutorial14-regression1.png"/>

<p>
  The coefficient of SMB is positive, so when small caps outperform large caps, the Small Cap Index will have higher returns, which is not surprising. By comparing the t statistics of those factors, we know that MKT and SMB are more important factors driving the Small Cap Index.
</p>
<p>
  Results for US Large Cap returns:
</p>
<img class="img-responsive" src="https://cdn.quantconnect.com/tutorials/i/Tutorial14-regression2.png" alt="Tutorial14-regression2.png"/>
<p>
  As expected, the coefficient of SMB is negative for the Large Cap Index. The coefficient of HML is quite low, which suggests that value and growth stocks take approximately the same weight in the Large Cap Index.
</p>
